Budget stalemate: What now?

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State budget talks broke down between legislative leaders and Gov. Douglas on Tuesday, tossing the Democratic leadership and the governor into a game of political chicken. The Democrats declared they would likely send out a budget of their own making and leave it to the governor to veto. If the Democrats leave in their request for $26.1 million in new taxes, while also transferring $19.8 million to the property tax, the governor’s veto will likely follow. Both sides have to ask how their intransigent positions serve the state.

Since the start of the economic downturn, Gov. Douglas has been suggesting cuts needed to be made to state services, while refusing to consider tax increases. Twenty million in cuts were made to the proposed fiscal year 2010 budget back in August. Since then, political stalemate has prevented further action. Estimates vary, but current projections suggest the state could be looking at deficits as big as $116 million in fiscal year 2011, and $194 million in 2012 — and that’s assuming the economy bottoms out and we see 3 percent growth in both fiscal years. It is not a promising forecast.

Just where should the political process take us from here?

One scenario is that after the showdown this week, the Legislature will adjourn and anticipate the governor’s veto. More dialogue will take place and finally they’ll propose another budget, call a special session and see if it passes and is approved by the governor. What’s certain is this: The longer the negotiating process goes into the summer, the deeper the cuts will have to be.

The Democrats, it must be noted, recently made a big concession to the governor by agreeing that $19.8 million allotted to the Teachers’ Retirement Fund should be shifted from the state’s general fund to the education fund — meaning it would financed through the local property tax. The Democratic leadership had resisted such a shift for months, but recently conceded because it was the one way the governor has been willing to, essentially, increase taxes — though he has refused to call it an increase on the property tax because voters will have the opportunity to slash their school budgets.

Has the governor conceded? So far, not much. He has held to an ideological — almost pathological — aversion to raising any taxes, and that lack of compromise has jeopardized progress on the budget and led to poor decision-making — like cutting the budgets for the state’s regional development corporations by 8 percent, with another 12 percent cut in the offing. (That’s just plain dumb to cut funding for programs that focus on job development and economic growth.)

For their part, the Democrats have been playing semantics with their talk of budgets “cut to the bone.” By all accounts, their proposed spending plan for fiscal year 2010 is up about 6.7 percent compared to fiscal year 2009. That may be a significant decrease from the initial budget proposal (therefore they can say they’ve cut their proposed spending), but in real terms it’s an increase — and much of that is being financed with the federal stimulus money. That is, as Gov. Douglas has been harping, a recipe for disaster two years down the road when the stimulus checks are gone.

The bottom line is not that difficult to perceive: Democrats must make some tough concessions to reduce government spending, and Douglas must concede to more revenue growth. Our guess is that most Vermonters have been hoping to see that logical compromise since the session began and are disappointed in the current stalemate.

To that end, legislative leaders and the governor should review the budget line-item by line-item and make specific suggestions as to which programs should be cut, which reduced and which increased. The caveat is to understand that leaving programs decimated serves no one well, and that boosting programs that seek to raise government revenue — economic development, for example — makes sense in this economy.

On the revenue side, the governor can make the easy concessions on increasing the sin taxes (cigarettes and alcohol); adding a tax to digital downloads (essentially the same as paying a tax when you buy a record at a store); and closing the loophole on capital gains. Similarly, the governor should agree to a hike in the gas tax.

For their part, Democrats must suggest cuts in programs. At this date, the human services budget, for example, is looking at a $180 million (by one report) increase over the prior year. Some of that increase is explained by higher unemployment payments, for example, and the added services required to help those most affected by the recession — as opposed to an expansion of services. Nonetheless, Vermont has always offered generous relief programs, and those may need to be trimmed in order to provide the basics to the thousands of additional people in need.

One mistake to avoid is weakening all governmental programs through cuts across the board, as Douglas has advocated, rather than to make the harder choices of selecting programs that add most value in hard times, while mothballing others. The governor should also be required to seek significant cuts in staffing throughout his administration — at a level back to when he first took office would be appropriate. Keeping public relations posts when vital services for people in need go lacking is an insult to all Vermonters.

The overarching goal is to live within the state’s means, but recognizing also that ineffective government does as much economic harm to the state as does excessive taxation.